Extreme Trades for the Week of October 15, 2018October 14, 2018
Extreme Trade No. 1 — Square Inc. (SQ)
Shares of Square Inc.(SQ) were slammed in recent days.
In fact, since early October 2018, the stock fell from $100 to $65 a share.
All thanks to a tech-routing, news that CFO Sarah Friar is stepping down, and news that CEO Jack Dorsey sold over 103,000 shares in early October.
But the sell-off was a bit too far, especially given its mind-boggling growth.
Second quarter revenue growth was up 48% year over year – and represents the fifth straight quarter of accelerating revenue growth. And there’s still plenty of growth ahead that could fuel hefty revenue streams and profit growth for years to come. In fact, the company believes it can grow revenue by 20% to 25% a year with margins of 35% to 40%.
Plus, consider this. There are millions of small- and mid-sized businesses just in the U.S., which generate a total of $6 trillion in revenue. Even better, the company believes it can capture a good deal of the international market, too, which is five times bigger than the U.S. markets.
Analysts are taking advantage of the pullback, too.
Canaccord Genuity for example just upgraded SQ to a Buy from a Hold, noting they had “been on the wrong side of Square stock for some time,” as noted by Barron’s. The firms also noted it sees a long-term opportunity given Square’s status as a “truly disruptive company.”
Technically, the stock has bottomed out. The stock is incredibly oversold. In fact, it hasn’t been this oversold in quite some time.
Not only is it outside its lower Bollinger Band (2,20), RSI is beginning to pivot from below its 30-line. MACD is historically oversold. Williams’ %R is below its 80-line. The last time RSI and W%R were this low, the stock exploded from just under $10 to $100. In our opinion, Square is an oversold opportunity at current prices. We believe it could make a quick return back to $100, immediate-term.
There are two ways to trade SQ.
One, buy the SQ stock at market prices. And, or two, buy to open the SQ November 16, 2018 75 and 80 calls at market prices, as well.
Extreme Trade No. 2 — Amazon.com (AMZN)
Amazon.com is excessively oversold.
In fact, the last two times the stock was this oversold it bounced back more than $500. And if we’re right, it could happen again, especially as we near the holiday season.
Notice what happens each time AMZN tests its lower Bollinger Band (2,20). Not long after it begins to pivot higher. Now look at what happens when Relative Strength (RSI) falls to or below its 30-line with an extreme drop on MACD, and a pullback to less than 80 on Williams.
About 80% of the time, the stock bounces back in a big way.
In late March 2018, it bounced from about $1,350 to $1,788. In August 2017, it bounced from $1,000 to $1,500. Now with Bollinger Bands, RSI, MACD and W%R in alignment again, we believe the stock could refill its bearish gap around $2,000. From there, we believe AMZN could move to $2,500.
From there, analysts at Jefferies believe the stock could rally to at least $3,000 a share by 2020.
According to Jefferies, as noted by US News, “Amazon’s key business segments, including core e-commerce, Amazon Web Services public cloud and Amazon Prime subscription services, are showing no signs of slowing down. At the same time, emerging high-growth businesses such as advertising could potentially be big for Amazon in the longer term.”
Even Tigress Financial just reiterated its buy rating on the stock, believing the recent pullback is a buying opportunity. Plus, we have to remember that AMZN is one of the most powerful companies on the planet. It’s growing quickly with no real signs of slowing growth.
To us, the recent pullback is a gift to smart investors, especially with the holidays quickly nearing. In fact, consider this, the National Retail Federation (NRF) says Americans will increase holiday spending by 4% this year to $721 billion.
In addition, research firms Forrester and eMarketer believe online sales could grow between 13.5% and 16.2% this holiday season.
That could be a sizable boon for Amazon.com
“Shoppers are using more online sources than ever: apps, wish lists, online gift registries, social media and blogs have all gradually grown over the past three years,” says Forrester, as quoted by Digital Commerce 360. “By contrast, traditional sources such as circulars, catalogs, direct mail, magazines, television, radio and inspiration within a retail store have all declined over the same period.”
It’s just another reason to get bullish on Amazon’s latest pullback.
The best way to trade AMZN is by buying the stock, and letting it run. We believe it could return at least $500, near-term.
Extreme Trade No. 3 — Micron Technology (MU)
Apparently, Micron is back in the buy zone.
Even as markets sink, the stock is picking up momentum, up $1.11 to $42.72.
One reason for the move is just how oversold the stock has become. For example, the stock is holding double bottom support around $42 a share. As long as that line in the sand holds, we believe it could recovery to $54, near-term. Not only is it at its lower Bollinger Band (2,20), it’s wildly oversold on Williams’ %R and MACD.
The last time MU was this low, it rallied to $62.
Also, months ago, billionaire Ken Griffin, who manages the $30 billion Citadel Fund just increased his position in MU by nearly 200%, as well. He picked up 5.6 million shares, bringing the fund’s total stake in MU to 8.48 million shares. It’s also running on news that Piper Jaffray initiated coverage with a $48 price target. According to Barron’s, analysts want “to see more clarity of inventory trends, trade-war ramifications, and the overall trajectory of the memory market…”
We must also take into consideration the longer-term demand on computing and storage needs. While revenues and earnings may not be exemplary near-term, memory products will see heavy demand with 5G, AI, self-driving cars, and the Internet of Things (IoT). At less than $43, the fear may have created quite an opportunity for long-term investors.
There are two ways to trade MU. One, buy the MU stock at market prices. The other way is to buy to open the MU December 21, 2018 42 calls at market prices.